Deck 4: Completing the Accounting Cycle

Question 1

Closing entries are designed to transfer the end-of-period balances in the revenue accounts,the expense accounts,and the withdrawals account to owner's capital.

Answer 1

True

Question 2

Accounts that appear in the balance sheet are often called temporary (nominal)accounts.

Answer 2

False

Question 3

Intangible assets are long-term resources that benefit business operations that usually lack physical form and have uncertain benefits.

Answer 3

True

Question 4

Revenue accounts should begin each accounting period with zero balances.

Question 5

The accounting cycle refers to the sequence of steps in preparing the work sheet.

Question 6

An unclassified balance sheet provides more information to users than a classified balance sheet.

Question 7

Permanent accounts carry their balances into the next accounting period.Moreover,asset,liability and revenue accounts are not closed as long as a company continues in business.

Question 8

Income Summary is a temporary account only used for the closing process.

Question 9

Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period.

Question 10

The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.

Question 11

Current assets and current liabilities are expected to be used up or come due within one year or the company's operating cycle whichever is longer.

Question 12

The closing process takes place after financial statements have been prepared.

Question 13

The Income Summary account is a permanent account that will be carried forward period after period.

Question 14

Revenue and expense accounts are permanent (real)accounts and should not be closed at the end of the accounting period.

Question 15

The first five steps in the accounting cycle include analyzing transactions,journalizing,posting,preparing an unadjusted trial balance,and recording adjusting entries.

Question 16

The last four steps in the accounting cycle include preparing the adjusted trial balance,preparing financial statements and recording closing and adjusting entries.

Question 17

A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers.

Question 18

Closing entries are necessary so that owner's capital will begin each period with a zero balance.

Question 19

Closing entries are required at the end of each accounting period to close all ledger accounts.

Question 20

Closing entries result in net income or net loss being transferred to the owner's capital account.

Question 21

On a work sheet,a loss is indicated if the total of the Income Statement Debit column exceeds the total of the Income Statement Credit column.

Question 22

The current ratio is used to help assess a company's ability to pay its debts in the near future.

Question 23

Closing entries are normally entered in the general journal and then posted to the work sheet.

Question 24

A company has current assets of $15,000 and current liabilities of $9,500.Its current ratio is 1.6

Question 25

A work sheet is a tool to help organize information needed in adjusting the accounts and preparing the financial statements.

Question 26

Plant assets are tangible assets that are usually long-term assets used to produce or sell products and services.

Question 27

Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.

Question 28

Plant assets are usually listed in order from most liquid to least liquid.

Question 29

Long-term investments can include land held for future expansion.

Question 30

Harry's Bikes current assets are $400 million and its current liabilities are $250 million.Its current ratio is 0.63.

Question 31

The current ratio is computed by dividing current liabilities by current assets.

Question 32

Assets are often classified into current assets,long-term investments,plant assets,and intangible assets.

Question 33

Current liabilities are cash and other resources that are expected to be sold,collected or used within one year or the company's operating cycle whichever is longer.

Question 34

Harry's Bikes current ratio is 1.3.The industry average for the current ratio is 1.2.This indicates that Harry's Bikes can cover its short term liabilities with its short term assets.

Question 35

Cash and office supplies are both classified as current assets.

Question 36

The work sheet is a required report.

Question 37

All necessary numbers to prepare the income statement can be taken from the income statement columns of the work sheet,including the net income or net loss.

Question 38

Current liabilities include accounts receivable,unearned revenues,and salaries payable.

Question 39

If all columns balance upon completion of a work sheet,you can be sure that no errors were made in preparing the work sheet.

Question 40

A work sheet is a substitute for the set of financial statements.

Question 41

After posting the entries to close all revenue accounts and all expense accounts,the Income Summary account of Waif Services has a $4,000 debit balance.This result implies that Waif Services earned a net income of $4,000.

Question 42

A company's post-closing trial balance has total debits of $40,350 and total credits of $40,650.Accordingly,the company should review for errors in the closing process.

Question 43

When expenses exceed revenues,there is a net loss and the Income Summary account would have a credit balance.

Question 44

An expense account is normally closed by debiting Income Summary and crediting the expense account.

Question 45

Reversing entries are optional.

Question 46

The steps in the closing process are (1)close credit balances in revenue accounts to Income Summary; (2)close credit balances in expense accounts to Income Summary; (3)close Income Summary to Owner's Capital; (4)close Withdrawals to Owner's Capital.

Question 47

The aim of a post-closing trial balance is to verify that (1)total debits equal total credits for temporary accounts,and (2)all temporary accounts have zero balances.

Question 48

A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

Question 49

The Income Summary account is used to close the permanent accounts at the end of an accounting period.

Question 50

Reversing entries are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of the prior accounting period.

Question 51

After posting the entries to close all revenue and expense accounts,Hatfield Company's Income Summary account has a credit balance of $6,000,and its Hatfield,Withdrawals account has a debit balance of $2,500.These balances indicate that net income for the current accounting period amounted to $3,500.

Question 52

The third closing entry is to close Owner's Capital to the Owner's Withdrawals account.

Question 53

On a work sheet,the adjusted balances of revenues and expenses are sorted to the Income Statement columns of the work sheet.

Question 54

The withdrawals account is normally closed by debiting it.

Question 55

Adjusting entries are normally entered in the general journal before they are posted to the work sheet.

Question 56

On the work sheet,net income is entered in the Income Statement Credit column as well as the Balance Sheet or Statement of Owner's Equity Debit column.

Question 57

All necessary numbers to prepare the balance sheet can be found in the balance sheet columns of the work sheet including ending owner's capital.

Question 58

A worksheet can be helpful in showing the effects of proposed or "what if" transactions,as well as being useful in helping to prepare end-of-period financial statements.

Question 59

Another name for temporary accounts is:

A)Real accounts.
B)Contra accounts.
C)Accrued accounts.
D)Balance column accounts.
E)Nominal accounts.

Question 60

Since it is an important financial statement,the work sheet must be prepared according to specified accounting procedures.

Question 61

When closing entries are made:

A)All ledger accounts are closed to start the new accounting period.
B)All temporary accounts are closed but not the permanent accounts.
C)All real accounts are closed but not the nominal accounts.
D)All permanent accounts are closed but not the nominal accounts.
E)All balance sheet accounts are closed.

Question 62

Two common subgroups for liabilities on a classified balance sheet are:

A)current liabilities and intangible liabilities.
B)present liabilities and operating liabilities.
C)general liabilities and specific liabilities.
D)intangible liabilities and long-term liabilities.
E)current liabilities and long-term liabilities.

Question 63

Accumulated Depreciation,Accounts Receivable,and Service Fees Earned would be sorted to which respective columns in completing a work sheet?

A)Balance Sheet and Statement of Owner's Equity-Credit; Balance Sheet and Statement of Owner's Equity Debit; and Income Statement-Credit.
B)Balance Sheet and Statement of Owner's Equity-Debit; Balance Sheet and Statement of Owner's Equity-Credit; and Income Statement-Credit.
C)Income Statement-Debit; Balance Sheet and Statement of Owner's Equity-Debit; and Income Statement-Credit.
D)Income Statement-Debit; Income Statement-Debit; and Balance Sheet and Statement of Owner's Equity-Credit.
E)Balance Sheet and Statement of Owner's Equity-Credit; Income Statement-Debit; and Income Statement-Credit.

Question 64

Closing the temporary accounts at the end of each accounting period does all of the following except:

A)Serves to transfer the effects of these accounts to the owner's capital account on the balance sheet.
B)Prepares the withdrawals account for use in the next period.
C)Gives the revenue and expense accounts zero balances.
D)Has no effect on the owner's capital account.
E)Causes owner's capital to reflect increases from revenues and decreases from expenses and withdrawals.

Question 65

The closing process is necessary in order to:

A)calculate net income or net loss for an accounting period.
B)ensure that all permanent accounts are closed to zero at the end of each accounting period.
C)ensure that the company complies with state laws.
D)ensure that net income or net loss and owner withdrawals for the period are closed into the owner's capital account.
E)ensure that management is aware of how well the company is operating.

Question 66

The assets section of a classified balance sheet usually includes:

A)Current assets, long-term investments, plant assets, and intangible assets.
B)Current assets, long-term assets, revenues, and intangible assets.
C)Current assets, long-term investments, plant assets, and equity.
D)Current liabilities, long-term investments, plant assets, and intangible assets.
E)Current assets, liabilities, plant assets, and intangible assets.

Question 67

The usual order for the asset section of a classified balance sheet is:

A)Current assets, prepaid expenses, long-term investments, intangible assets.
B)Long-term investments, current assets, plant assets, intangible assets.
C)Current assets, long-term investments, plant assets, intangible assets.
D)Intangible assets, current assets, long-term investments, plant assets.
E)Plant assets, intangible assets, long-term investments, current assets.

Question 68

A classified balance sheet differs from an unclassified balance sheet in that

A)a unclassified balance sheet is never used by large companies.
B)a classified balance sheet normally includes only three subgroups.
C)a classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio.
D)a classified balance sheet will include more accounts than an unclassified balance sheet for the same company on the same date.
E)a classified balance sheet cannot be provided to outside parties.

Question 69

A columnar working paper used to prepare a company's unadjusted trial balance,adjusting entries,adjusted trial balance,and financial statements,and which is an optional tool in the accounting process is a(n):

A)Adjusted trial balance.
B)Work sheet.
C)Post-closing trial balance.
D)Unadjusted trial balance.
E)General ledger.

Question 70

The current ratio:

A)Is used to measure a company's profitability.
B)Is used to measure the relation between assets and long-term debt.
C)Measures the effect of operating income on profit.
D)Is used to help evaluate a company's ability to pay its debts in the near future.
E)Is calculated by dividing current assets by equity.

Question 71

The Unadjusted Trial Balance columns of a company's work sheet show the balance in the Office Supplies account as $750.The Adjustments columns show that $425 of these supplies were used during the period.The amount shown as Office Supplies in the Balance Sheet columns of the work sheet is:

A)$325 debit.
B)$325 credit.
C)$425 debit.
D)$750 debit.
E)$750 credit.

Question 72

Which of the following statements is incorrect?

A)Permanent accounts is another name for nominal accounts.
B)Temporary accounts carry a zero balance at the beginning of each accounting period.
C)The Income Summary account is a temporary account.
D)Real accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in existence.
E)The closing process applies only to temporary accounts.

Question 73

Assets,liabilities,and equity accounts are not closed; these accounts are called:

A)Nominal accounts.
B)Temporary accounts.
C)Permanent accounts.
D)Contra accounts.
E)Accrued accounts.

Question 74

All of the following regarding current ratio are true except:

A)Current ratio is calculated by dividing current assets by current liabilities.
B)Current ratio helps to assess a company's ability to pay its debts in the near future.
C)Current ratio does not affect a creditor's decision on when to allow a company to buy on credit.
D)Current ratio can affect a creditor's decision about whether to lend money to a company.
E)Current ratio can reveal problems in a company if it is less than 1.

Question 75

Revenues,expenses,and withdrawals accounts,which are closed at the end of each accounting period are:

A)Real accounts.
B)Temporary accounts.
C)Closing accounts.
D)Permanent accounts.
E)Balance sheet accounts.

Question 76

Which of the following is the usual final step in the accounting cycle?

A)Journalizing transactions.
B)Preparing an adjusted trial balance.
C)Preparing a post-closing trial balance.
D)Preparing the financial statements.
E)Preparing a work sheet.

Question 77

The recurring steps performed each reporting period,starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance,is referred to as the:

A)Accounting period.
B)Operating cycle.
C)Accounting cycle.
D)Closing cycle.
E)Natural business year.

Question 78

Closing entries are required:

A)if management has decided to cease operating the business.
B)only if the company adheres to the accrual method of accounting.
C)if a company's bookkeeper forgets to prepare reversing entries.
D)if the temporary accounts are to reflect correct amounts for each accounting period.
E)in order to satisfy the Internal Revenue Service.

Question 79

A classified balance sheet:

A)Measures a company's ability to pay its bills on time.
B)Organizes assets and liabilities into important subgroups.
C)Presents revenues, expenses, and net income.
D)Reports operating, investing, and financing activities.
E)Reports the effect of profit and withdrawals on owner's capital.

Question 80

Journal entries recorded at the end of each accounting period to prepare the revenue,expense,and withdrawals accounts for the upcoming period and to update the owner's capital account for the events of the period just finished are referred to as:

A)Adjusting entries.
B)Closing entries.
C)Final entries.
D)Work sheet entries.
E)Updating entries.